To enhance corporate social responsibility (CSR) initiatives and foster greater accountability among companies, the Centre is contemplating significant revisions to the existing CSR norms, according to sources familiar with the matter.
The proposed changes, currently under deliberation, aim to expand the scope and coverage of CSR activities mandated under the Companies Act, 2013. Additionally, the government is exploring adjustments to the penalty structure to deter companies from non-compliance with CSR obligations. Under Section 135 of the Companies Act, firms meeting certain criteria are required to allocate a minimum of 2% of their average net profits of the preceding three financial years towards specified CSR activities. Failure to meet this obligation attracts penalties, including a fine double the unspent amount or Rs 1 crore, whichever is lower. However, concerns have been raised that these penalties are insufficient to deter non-compliance, particularly among companies with substantial CSR commitments. The government is reportedly considering revising the penalty cap to address this issue. By reviewing the penalty structure, the aim is to ensure that penalties are commensurate with the magnitude of unspent CSR funds, thereby incentivising timely and adequate CSR spending.
Furthermore, discussions are underway to broaden the scope of CSR activities eligible for expenditure. Experts suggest streamlining the criteria for eligible activities to allow companies greater flexibility in allocating CSR funds across a wider spectrum of initiatives. This move is intended to promote innovation and inclusivity in CSR spending while aligning with national development priorities. A key aspect of the proposed revisions involves reevaluating the requirement for local area CSR spending. While the Companies Act emphasises a preference for CSR expenditure in the vicinity of company operations, recent interpretations have introduced ambiguity regarding the mandatory nature of this provision. The government aims to clarify this aspect to ensure alignment with the original intent of promoting localised community development through CSR initiatives. The potential overhaul of CSR norms reflects the government’s commitment to promoting responsible corporate citizenship and driving meaningful social impact. By redefining CSR obligations and penalties, the government seeks to catalyse corporate participation in nation-building efforts while ensuring greater transparency and accountability in CSR practices.
